O-I Glass outlook revised to stable due to weak alcoholic beverage volumes: S&P Global
Investing.com -- S&P Global has revised its outlook for O-I Glass (NYSE: OI ) Inc. from positive to stable, citing marked underperformance in 2024 due to decreasing volumes and lower net prices. The company's 'BB-' issuer credit rating was affirmed. The performance downturn was attributed to weak demand, prompting O-I Glass to adjust its capacity and reduce inventory levels, which in turn affected earnings and cash flows.
The stable outlook for O-I Glass is based on the expectation that the company's leverage will improve to around 4.5x over the next year. This is anticipated to be the result of earnings growth due to permanent capacity reductions and fewer temporary production curtailments. Cash flows are also expected to improve in 2025 due to higher earnings and lower capital expenditure (capex), leading to a modest reduction in net debt.
The alcoholic beverage volumes, a significant contributor to O-I Glass's revenue, are expected to remain subdued in 2025. This follows an underperformance in 2024 due to weak consumer demand, influenced by the cumulative effect of high inflation in 2022 and 2023. Destocking headwinds persisted throughout 2024 for longer-cycle products, including wine and spirits, with a decrease in consumption among young adults and high levels of in-home pantry stocks after the pandemic.
In 2024, O-I Glass' shipments decreased by 3.9%, with a 3.5% decrease in its Americas segment and a 4.2% decrease in its Europe segment. The alcoholic beverage market, which represented approximately 62% of O-I Glass’ revenue in 2024, is expected to continue to be influenced by changing consumer preferences. Revenue for 2025 is projected to be flat to slightly lower due to flat volume growth and slightly lower sales prices.
O-I Glass has announced a restructuring program named "Fit To Win" in July, aimed at enhancing competitiveness and improving operating performance. The program, which includes the closure of 7% of its capacity to optimize its network, is expected to increase company-adjusted EBITDA to at least $1.45 billion by 2027 through $300 million of annualized savings. However, restructuring costs will pressure its S&P Global Ratings-adjusted EBITDA in the near term.
In 2024, restructuring costs of about $204 million and $250 million of costs related to temporary production curtailments significantly lowered the company’s earnings and cash flows. The company expects to see at least $75 million of savings from its permanent capacity reductions in 2025, despite some restructuring costs carrying over into the year.
O-I Glass' free operating cash flow (FOCF) is forecasted to improve to $125 million-$150 million in 2025. In 2024, weaker earnings significantly reduced the company’s cash flows. Lower net prices, temporary production curtailments, and cash restructuring costs related to permanent capacity reductions resulted in a considerable decrease in EBITDA. Despite a reduction in capex, a reported FOCF deficit of $128 million was recorded due to lower net price in Europe and the company’s efforts to strategically reduce its inventory levels.
S&P Global has indicated that it could lower the rating on O-I Glass if the company's leverage remains well above 5.0x, which could occur if volumes continue to decline and the company cannot realize the benefits from its restructuring actions and production curtailment efforts. Conversely, the rating could be raised if the company sustains stronger cash flows and credit metrics, including leverage well below 4.0x, and demonstrates a financial policy committed to maintaining a lower long-term leverage target.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.